Taxation in Denmark

In the sixteenth century, Denmark primarily obtained state income through taxes excised on feudal Demesne lands [1] and the Sound Dues, which required foreign ships to pay a toll when passing through the Øresund bordering Denmark.

In fact, the Dues comprised two-thirds of Denmark's tax revenue throughout the sixteenth and seventeenth centuries.

[2] The costs of warfare, such as those of the Thirty Years' War, were further fulfilled by Denmark's heavily agricultural economy.

In later conflicts such as the Scanian War and the Great Northern War, however, Denmark ceded much of its territory, resulting in monetary losses that prompted higher tax rates and the introduction of an initially small income tax.

By 1897, Denmark's income tax encompassed 15.00% [3] of the state's total revenue, far surpassing any other European country at the time.

[3] Following World War II, as with many other countries, Denmark began to enact several social welfare programs, including aid for the sick and the unemployed.

[5] Furthermore, the Danish Tax Reform of 2010 gradually cut taxes "to increase labour supply in the medium to long term and at same time contribute to soften the effects of the global economic crises in the short run.

Despite these policies, income taxes have stabilized at providing around 50% of Denmark's total revenue since 1990.

The official Denmark website remarks that "most Danes will tell you that they are happy to pay taxes because they can see what they get in return," including free tuition, healthcare, and social security.

[11] In 2023 the Social Democratic-liberal coalition government of Prime Minister Mette Frederiksen passed a tax reform that split the previous top-income tax bracket into three brackets: This tax reform is intended to increase long term labour supply,[12] specifically in the light of the labour shortages experienced within various high skilled jobs, especially within fields like IT, engineering and health services[13] There is also a municipal income tax varies from municipality to municipality, with rates varying from 22.5% to 27.8% in 2019.

Furthermore, union fees not exceeding DKK 6,000 annually are tax deductible as well as some other job-related expenses.

Members of the Scheme are exempt from normal taxation, but instead pay a 32.84% flat tax, inclusive of Labour market contributions.

[20] Personal income from shares (dividends as well as realized capital gains) are taxed at 27% below ca.

Denmark has a non-deductible value added tax (VAT) of 25%:[22] MOMS (Danish: merværdiafgift, formerly meromsætningsafgift).

A number of services are not subject to VAT, however, for instance public transportation of private persons, health care services, publishing newspapers, rent of premises (the lessor can, though, voluntarily register as VAT payer, except for residential premises), and travel agency operations.

The motorized vehicle registration tax for private households is over 100% of approximately the first 100,000 DKK of the auto dealer's price, and 150% on the amounts over appr.

Commercial enterprises and two-seater vehicles for private household buyers (no passenger seats in the back) pay a lower registration fee.

[28] This is partly due to various tax-funded social transfer schemes such as pensions and unemployment benefits also being taxable when received by beneficiaries.

[29][30] Additionally, due to the Danish universal welfare model, most Danish welfare schemes are tax funded as opposed to insurance-based, being calculated as a percentage of one's income tax instead of a lump sum contribution.